Situation: An early stage company is positioning itself for growth. The CEO believes that they need to adopt a new model to grow. She is focused on a new channel – an affiliate model using the web. How do you build a young company?
Advice from the CEOs:
Introducing a new product to a new market is very difficult, especially for an early stage business that is still establishing itself. Shifting from direct sales to ancillary services presents a new challenge and a new demographic. In addition, in your market there are low barriers to entry so it may be too early to diversify. You are more likely to be successful marketing to your core.
Evaluate and decide whether there is growth in your core business. If so, stick with your core plan. If not, then you either must change or decide that your core market is not what you thought it would be.
You offer a valuable, important service. The issue is branding and a clear vision of what you want to be. Start by identifying your revenue stream. Then assess ways that you can move from one-time sales to an annuity revenue stream without major adjustments to your model.
Is it feasible to build a revenue share model for ancillary services with your core business partners? Here are the steps:
Develop a model.
Talk to both your business partners and customers – test the concept. See how they respond.
There are two things to look for: does it turn out that that the model is easy to sell and implement, with little effort or distraction from our core business, or does it compliment your core business. If either or both is the case, you may want to pursue it.
Situation: A CEO feels overworked, fatigued and ready to retire! The core problem is a long-term employee who is constantly resisting the CEO’s the company’s strategic direction. How can the CEO alleviate this situation? How do you work with a resistant employee?
Advice from the CEOs:
If this individual is valuable, try to work with him first.
Can you give him a different focus – another role within the company for which his talents are suited and where he will make a significant contribution?
For a change like this to be effective it must be offered and accepted with the condition that this becomes his focus and not your strategic leadership of the company.
How is it best to have this conversation?
First, clearly state the direction of the company.
Then ask a question: What do you want to be doing for the next 5 years?
You may be surprised by the response to the question. It may lead you to a win-win solution; or it may become clear that this individual needs to be doing something else.
Conduct the discussion in two stages – but without a lot of time between these two discussions.
“You are valuable but things have to change. I prefer that you remain as part of the team, but on the strategic front you have a choice – are you on board or not?”
If after consideration the answer is that he is not on-board then you must let him go.
Don’t blindside this person. Think of a Resurrection versus a Come to Jesus Meeting.
If it turns out that you must get rid of this person you will wonder: why you didn’t do this 6 months ago.
Situation: A company has customers scattered around world. When the company was small, the CEO was very involved at all levels of sales and customer relations. Now that the company is larger, the CEO is more strategic but misses client contact, particularly for gathering market intelligence and understanding. The CEO does go on regular sales calls with reps but is getting push-back from the Sales VP. What is the CEO’s role in sales?
Advice from the CEOs:
Make an effort to understand the push-back coming from the Sales VP. Probe – where is the resistance coming from? What is the basis of the resistance? Is it personal or functional? Keep probing until the roots of resistance are clear, and then deal with these.
As CEO, insist on continuing customer contact. This is essential to your role and your understanding of your market.
Sit down and discuss this with the Executive Team. Go over your travel schedule and your objective in meeting with customers. Where appropriate meeting opportunities exist, let them know that you want to be included. Follow-up and repeat the message if they do not schedule you for calls.
How does the sales rep position this with a client? Let the customer know that the CEO will be visiting the area and would like to meet you. Here are the broad objectives and the benefit to you. Knowing that the CEO is interested in meeting with the client can be a powerful way to deepen the relationship with the client.
Having the CEO accompany the local representative on the first meeting with a customer sends the wrong message. Let the representative establish the relationship first. Then bring in the CEO to deepen and strengthen the relationship when the opportunity is right.
Situation: A company is actively marketing to prospective clients and also engages in networking. They want to assure that they are up to speed with current trends in marketing. What are best practices for following up on marketing or networking contacts? How do you best leverage networking?
Advice from the CEOs:
Timing is everything. A prospective client may or may not have an immediate need for your product or service, but may develop a need in the future. Assure that you have a program that provides ongoing follow up via:
Regular personal follow up
Initial follow up should be rapid. Ask for permission to follow-up and set the time frame when you meet a new prospective client. Ask how the prospect prefers for you to stay in touch. Do they prefer newsletters follow-up via social media, or personal follow-up?
Draft letter, email and social media communication templates ahead of time so that rapid follow-up is easy.
Use an electronic or print newsletter to stay in touch with prospects. Social media have become an increasingly important way to stay in touch with networking contacts.
Basic newsletters are usually 2-3 pages, or a one pager with links to see full articles.
Look at contact management software: for example Salesforce.com or ACT.
Basic sales and marketing subscriptions from Salesforce.com start at $25/user/mo. for up to 5 users, or $65/user/mo. for a complete customer relations management (CRM) system.
Quality of collateral is important. It is a face of your company. High quality collateral should have a consistent look and feel, and should remind the prospect why they were interested in you and your company in the first place.
Situation: A company hired an experienced individual to sell for them as a consultant. The individual initially asked to be paid on an hourly basis. Results have come with surprising speed. Now the consultant is asking for a commission on sales. How much should you pay a salesperson?
Advice from the CEOs:
Tailor the commission structure to company objectives. For example, if the objective is to reward new business development, and to retain the individual, try something like:
Offer 10% commission on Year 1 sales.
If both the customer and the consultant are still with the company in Year 3, the consultant gets a 5% bonus on Year 2 and 3 sales.
Repeat this for successive years.
If the interest is a long-term relationship, determine the nature of the sales services where the consultant excels.
What is the individual’s focus?
Have a highly qualified sales expert do a telephone interview of the consultant and offer their assessment of the individual’s talents.
One successful sales model includes one measure to retain the job, and another to calculate commissions:
Set a dollar quota for sales performance – if the individual does not hit at least 85% of quota, they lose their job.
However, calculate commissions based on the gross profit that their sales generate.
This properly balances the focus between revenue and gross profit generation. To succeed, the individual must pay attention to both measures.
If the individual wants a substantial commission, then don’t pay a substantial base. Instead pay a draw against commissions to allow them to support themselves between sales.
Pay on receipt of payment, not on receipt of orders.
Situation: A company has experienced delays in closing their annual books for years. Inability to complete final inventory is the critical factor. In recent years it has taken four months or more to get final numbers for the year. How do you close the books on time?
Advice from the CEOs:
It is important to put a system into place well in advance of fiscal year end. A key part of this is to conduct final inventory so that it is done smoothly and accurately either immediately prior to or following the end of the fiscal year. Retail or wholesale operations normally complete final inventory within 30 days of fiscal year end.
If your inventory includes both large and small value items, ask whether you have to count everything. Based on past inventory it may be that small items that do not substantially impact final inventory can either be eliminated from the count or handled on an exception basis.
Consider a system of doing monthly or rotating monthly inventory smaller sets of items that make up perhaps 60% of sales, and quarterly inventory on an additional larger set of items that together with the first groups make up perhaps 80% of sales. By completing inventory of these items more frequently, the company will not only have a better handle on total inventory, but is also likely to be more accurate at the end of the year. At year-end inventory add those items that make up the final 20% of sales to the inventory count.
Again, depending upon the nature of the inventory, it may not be necessary to count items that, as groups, are valued under $500 per group. Seek expert advice from your accountant on this point.
Situation: A CEO wants to build a new bonus program for the company’s professional services team. He wants to include a customer satisfaction component, because the group is historically weak in this area. Does it make sense to have a different bonus plan for professional services personnel and managers than for product development personnel and managers? Can bonus plans differ between departments?
Advice from the CEOs:
Many companies have different bonus structures for different departments. This is natural because different departments have different functions. For example, Sales may evaluated for bonuses based on a combination of revenue and gross margin achievement, while Finance is evaluated on profitability and Product Development is evaluated on hitting product launch schedules and new product sales.
Changing bonus structures can be a sensitive matter. If the team impacted is not included in the process of drafting the new plan, changes may be perceived as negative. If this is the case, it’s better to frame the new program so that you limit your commitment to it to just one year, and let the team know that this may change this next year.
How do you go about including customer satisfaction surveys as a component of bonus calculation?
If you want to use customer satisfaction as part of the plan, benchmark customer service satisfaction before you launch the plan. If you don’t benchmark, how do you know whether performance improves?
Survey response rates will be an issue – you won’t get 100% and may get a survey response rate of 10% or worse. Be prepared for this and make sure that data with a low response rate will support your objectives.
A survey is a lagging metric. If you can find a measurable leading metric to use as well this is better.
Be careful of how the survey is drafted and who conducts it. Both can bias results.
As an alternative to making customer satisfaction part of a bonus plan, consider starting a customer satisfaction or loyalty program. The most important question to ask will be: would you recommend us to your peers? Any low response guarantees a follow-up call from the company.
Situation: A company is frequently short of cash at payroll time. It has good revenue and profitability, but timing of receipts can make it difficult to meet payroll. Are the CEO and CFO doing something wrong, and what changes should they look at to better manage cash flow needs? What are best ways to boost cash flow?
All financing begins with your cash flow pattern! Your ability to manage cash flow is the foundation of credit worthiness. It is both a reflection of past performance and specific future performance expectations.
What can you do to optimize your situation?
First – put your own house in order!
Review your business model and the aspects of the business model that are causing cash flow challenges. Based on what you find, fine-tune your business model and its cash flow capacity. If receipts are the challenge, work with your customers to focus on timely payments.
Understand your financing needs in their full context. What short-term financing options are available? Will your bank offer you better terms on your line of credit to keep your business.
Stop, think and analyze before you act.
Framing: View the problem in its full context!
Alternatives: Consider all relevant choices!
Trade-offs: Get more than you are giving up!
It is important to fine tune your business model, not just in slack times when you have the time, but also in good times so that you are well-prepared for the next slack period.
When times are flush, set aside funds to invest in analysis of your business model.
Special thanks and in memory of Eric Helfert, PhD for his advice in this discussion.
Interview with Keith Merron, CEO, Avista Consulting Group
Situation: Ongoing uncertainty makes it difficult to clarify strategies going forward. What are the bases for these uncertainties and how do you manage opportunities in this economy?
The world is moving so rapidly that they key to success is differentiation. There is so much information about how to do this that companies start to look similar very quickly. The ability to stand out as different is critical. Ask yourself:
What is my target market?
What are the needs that my offer will satisfy?
What is my unique approach that is distinct from other solutions which meet these needs?
Once you identify the answers, you need to back these up.
One has the opportunity to write the future. If you can get one step ahead of the curve this is a huge advantage.
Products that died were often two steps ahead.
Successful visionaries see patterns that are emerging, sense what is next, and speak to that.
Because information is at your fingertips through the Internet anyone can set up a business. The Challenges are viability and sustainability. If these are present the opportunities are huge.
The web is a place where you can share information. How to monetize this is unclear.
Once you have a following you can offer things for sale that are valued by your following. When this happens, the potential for fast growth is more available than ever. So is the flip side. If a restaurant gets trashed on Yelp this can kill it!
In a recession, M&A activity is faster. This enables one to establish a presence much more easily.
There are many virtual companies. You no longer have to be in the same place to work together! There are also many ways to partner or co-brand via the Internet.
What’s hard is to create tensile strength in the relationship. Because it is so quick and easy to cobble together relationships, the biggest challenges are creating loyalty and commitment.
The needs are communications, motivation, commitment and follow-through – just like in a traditional company but in a virtual space. This creates a true bond.